KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains certain statements that may be considered
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Section 27A of the
Securities Act of 1933, as amended. All statements, other than statements of
historical or current fact, are statements that could be deemed forward-looking
statements, including without limitation:
•any projections of or guidance regarding earnings, earnings per share,
revenues, cash flows, dividends, capital expenditures, or other financial items,
•any statement of plans, strategies, and objectives of management for future
operations,
•any statements concerning proposed acquisition plans, new services, or
developments,
•any statements regarding future economic conditions or performance, and
•any statements of belief and any statements of assumptions underlying any of
the foregoing.
In this Quarterly Report, forward-looking statements include, but are not
limited to, statements we make concerning:
•the ability of our infrastructure to support future growth, whether we grow
organically or through potential acquisitions,
•the impacts of the COVID-19 global pandemic,
•the future impact of acquisitions, including achievement of anticipated
synergies,
•the flexibility of our model to adapt to market conditions,
•our ability to recruit and retain qualified driving associates,
•future safety performance,
•future performance of our segments or businesses,
•our ability to gain market share,
•the ability, desire, and effects of expanding our logistics, brokerage, and
intermodal operations,
•future equipment prices, our equipment purchasing or leasing plans, and our
equipment turnover (including expected tractor trade-ins),
•our ability to sublease equipment to independent contractors,
•the impact of pending legal proceedings,
•the expected freight environment, including freight demand and volumes,
•economic conditions and growth, including future inflation, consumer spending,
supply chain conditions, and US Gross Domestic Product ("GDP") changes,
•future pricing terms from vendors and suppliers,
•expected liquidity and methods for achieving sufficient liquidity,
•future fuel prices and the expected impact of fuel efficiency initiatives,
•future expenses and our ability to control costs,
•future operating profitability,
•future third-party service provider relationships and availability,
•future contracted pay rates with independent contractors and compensation
arrangements with driving associates,
•our expected need or desire to incur indebtedness,
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
•future capital expenditures and expected sources of liquidity, capital
allocation, capital structure, capital requirements, and growth strategies and
opportunities,
•expected capital expenditures,
•future mix of owned versus leased revenue equipment,
•future asset utilization,
•future return on capital,
•future share repurchases and dividends,
•future tax rates,
•future trucking industry capacity and balance between industry demand and
capacity,
•future rates,
•future depreciation and amortization,
•expected tractor and trailer fleet age,
•future investment in and deployment of new or updated technology,
•political conditions and regulations, including trade regulation, quotas,
duties, or tariffs, and any future changes to the foregoing,
•future insurance claims, premiums, and retention limits,
•future purchased transportation expense, and
•others.
Such statements may be identified by their use of terms or phrases such as
"believe," "may," "could," "will," "would," "should," "expects," "estimates,"
"designed," "likely," "foresee," "goals," "seek," "target," "forecast,"
"projects," "anticipates," "plans," "intends," "hopes," "strategy," "objective,"
"continue," "outlook," and similar terms and phrases. Forward-looking
statements are based on currently available operating, financial, and
competitive information. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified, which
could cause future events and actual results to materially differ from those set
forth in, contemplated by, or underlying the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in Part I, Item 1A "Risk Factors" in our 2019 Annual
Report, Part II, Item 1A "Risk Factors" in our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2020 , and various disclosures in our press releases,
stockholder reports, and other filings with the SEC .
All such forward-looking statements speak only as of the date of this Quarterly
Report. You are cautioned not to place undue reliance on such forward-looking
statements. We expressly disclaim any obligation or undertaking to publicly
release any updates or revisions to any forward-looking statements contained
herein, to reflect any change in our expectations with regard thereto, or any
change in the events, conditions, or circumstances on which any such statement
is based.
Reference to Glossary of Terms
Certain acronyms and terms used throughout this Quarterly Report are specific to
our company, commonly used in our industry, or are otherwise frequently used
throughout our document. Definitions for these acronyms and terms are provided
in the "Glossary of Terms," available in the front of this document.
Reference to Annual Report
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the condensed consolidated
financial statements (unaudited) and footnotes included in this Quarterly
Report, as well as the consolidated financial statements and footnotes included
in our 2019 Annual Report.
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED Executive Summary Impact of COVID-19 During the second quarter and first half of 2020, we incurred approximately$10.0 million and$12.3 million , respectively, of expenses directly attributable to the pandemic, which were incremental to those incurred prior to the outbreak. These primarily pertained to payroll premiums paid to our drivers and shop technicians, as well as additional disinfectants and cleaning supplies, and various other pandemic-specific items. The costs are clearly separable from our normal business operations and are not expected to recur once the pandemic subsides. Refer to Note 1 in Part I, Item 1 of this Quarterly Report for further discussion around the impact of COVID-19 on our company. Refer to Part II, Item 1A "Risk Factors" in our Quarterly Report for the quarterly period endedMarch 31, 2020 for more discussion about potential risks and uncertainties surrounding the COVID-19 pandemic that may impact our business, results of operations, or financial condition. Company OverviewKnight-Swift Transportation Holdings Inc. isNorth America's largest truckload carrier and a provider of transportation solutions, headquartered inPhoenix, Arizona . The Company provides multiple truckload transportation, intermodal, and logistics services using a nationwide network of business units and terminals in the US andMexico to serve customers throughoutNorth America . In addition to its truckload services, Knight-Swift also contracts with third-party capacity providers to provide a broad range of shipping solutions to its customers while creating quality driving jobs for our driving associates and successful business opportunities for independent contractors. Our three reportable segments are Trucking, Logistics, and Intermodal. Additionally, we have various non-reportable segments. Refer to Note 15 in Part I, Item 1 of this Quarterly Report for descriptions of our segments. Our objective is to operate our business with industry-leading margins and growth while providing safe, high-quality, cost-effective solutions for our customers. Revenue •Our trucking services include irregular route and dedicated, refrigerated, expedited, flatbed, and cross-border transportation of various products, goods, and materials for our diverse customer base. We primarily generate revenue by transporting freight for our customers through our Trucking segment. •Our logistics and intermodal operations provide a multitude of shipping solutions, including additional sources of truckload capacity and alternative transportation modes, by utilizing our vast network of third-party capacity providers and rail providers, as well as certain logistics and freight management services. Revenue in our logistics and intermodal operations is generated through our Logistics and Intermodal segments. •Our non-reportable segments include support services provided to our customers and independent contractors (including repair and maintenance shop services, equipment leasing, warranty services, and insurance), trailer parts manufacturing, warehousing, and certain driving academy activities, as well as certain corporate expenses (such as legal settlements and accruals, certain impairments, and amortization of intangibles related to the 2017 Merger and various acquisitions). •In addition to the revenues earned from our customers for the trucking and non-trucking services discussed above, we also earn fuel surcharge revenue from our customers through our fuel surcharge program, which serves to recover a majority of our fuel costs. This applies only to loaded miles and typically does not offset non-paid empty miles, idle time, and out-of-route miles driven. Fuel surcharge programs involve a computation based on the change in national or regional fuel prices. These programs may update as often as weekly, but typically require a specified minimum change in fuel cost to prompt a change in fuel surcharge revenue. Therefore, many of these programs have a time lag between when fuel costs change and when the change is reflected in fuel surcharge revenue for our Trucking segment. 32
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Expenses - Our most significant expenses vary with miles traveled and include
fuel, driving associate-related expenses (such as wages and benefits), and
services purchased from independent contractors and other transportation
providers (such as railroads, drayage providers, and other trucking companies).
Maintenance and tire expenses, as well as the cost of insurance and claims
generally vary with the miles we travel, but also have a controllable component
based on safety improvements, fleet age, efficiency, and other factors. Our
primary fixed costs are depreciation and lease expense for revenue equipment and
terminals, amortization of intangible assets, interest expense, and non-driver
employee compensation.
Operating Statistics - We measure our consolidated and segment results through
certain operating statistics, which are discussed under "Results of Operations -
Segment Review - Operating Statistics," below. Our results are affected by
various economic, industry, operational, regulatory, and other factors, which
are set forth in Part I, Item 1A "Risk Factors" in our 2019 Annual Report, Part
II, Item 1A "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2020 , and various disclosures in our press releases, stockholder
reports, and other filings with the SEC .
Consolidated Key Financial Highlights and Operating Metrics
Quarter-to-Date June 30, Year-to-Date June 30,
2020 2019 2020 2019
GAAP financial data: (Dollars in thousands, except per share data)
Total revenue $ 1,060,698 $
1,242,083
$ 0.47 $ 0.46 $ 0.85 $ 0.97 Operating ratio 90.4 % 91.3 % 90.7 % 90.8 % Non-GAAP financial data: Adjusted Net Income Attributable to$ 96,498 $ 100,627 $ 172,703 $ 196,808 Knight-Swift 1 Adjusted EPS 1$ 0.57 $ 0.58 $ 1.01 $ 1.14 Adjusted Operating Ratio 1 87.6 % 87.8 % 88.1 % 88.1 % Revenue equipment: Average tractors (Trucking segment only) 2 18,393 18,985 18,428 18,959 Average trailers 3 57,269 58,263 57,456 56,902 Average containers 10,853 9,863 10,355 9,864 1 Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are non-GAAP financial measures and should not be considered alternatives, or superior to, the most directly comparable GAAP financial measures. However, management believes that presentation of these non-GAAP financial measures provides useful information to investors regarding the Company's results of operations. Adjusted Net Income Attributable to Knight-Swift, Adjusted EPS, and Adjusted Operating Ratio are reconciled to the most directly comparable GAAP financial measures under "Non-GAAP Financial Measures," below. 2 The average age of our company-owned tractor fleet was 2.1 years as ofJune 30, 2020 and 2019. 3 The average age of our trailer fleet was 7.6 years and 7.3 years as ofJune 30, 2020 and 2019, respectively. 33
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Market Trends and Company Performance
Trends and Outlook - Our operational discipline, agility, and cost-control
culture enabled us to execute through the unprecedented challenges presented by
the COVID-19 pandemic, which introduced a new source of volatility throughout
the global markets during the first half of 2020. Our diversified customer base,
networks, and unique brands positioned us to navigate a disrupted freight
environment of unpredictable shipping volumes, shifts in pricing, and continued
challenges in driver sourcing.
The national unemployment rate was 11.1%1 as of June 30, 2020 after the COVID-19
pandemic resulted in higher unemployment rates in the beginning of the quarter,
which began to decline in May and June as economic activities resumed. A more
pronounced reduction in trained drivers (primarily due to social distancing
measures across the nation), ongoing competition for experienced hires,
increased safety regulations, and various alternative sources of income to
potential drivers are all hampering driver sourcing efforts throughout the
industry.
During the second quarter of 2020, the US gross domestic product, which is the
broadest measure of goods and services produced across the economy, decreased by
32.9%2, per preliminary third-party forecasts. This may result in an expected
annualized growth rate of approximately -5.0% to -6.0%3 for full-year 2020, as
third-party forecasts are predicting an economic rebound in the latter half of
this year. The second quarter 2020 US employment cost index rose 2.7%1 and 0.5%1
on a year-over-year and sequential basis, respectively.
From a freight market perspective, demand in April was weak, but gradually
strengthened throughout the quarter, and remained strong in July. We are
encouraged by the continued strength in freight demand in July; however, demand
may be difficult to predict for the back half of the year. We believe supply has
and will continue to exit the market as evidenced by significantly lower class 8
truck orders, a weak used equipment market, and lower transportation employment
levels.
Looking across our portfolio of brands and freight networks, some of our
operating segments performed consistently throughout the quarter, while others
experienced more volatility in results. Our Trucking segment improved its
Adjusted Operating Ratio to 85.5% in the second quarter of 2020, as strong cost
controls and lower fuel prices overcame a 6.5% decrease in average revenue per
tractor and a $5.8 million (or $0.03 of earnings per diluted share, after taxes)
decline in gain on sales of used equipment. Our Logistics segment produced an
Adjusted Operating Ratio of 95.5% in the second quarter of 2020, primarily
driven by a gross margin of 15.7% within our brokerage business. Consistent with
port industry trends, load volumes within our Intermodal segment continued to be
pressured and decreased by 23.9% in the second quarter of 2020, as compared to
the same quarter last year, while margins worsened.
We anticipate that depreciation and amortization expense will increase and
rental expense will correspondingly decrease, as a percentage of revenue
excluding trucking fuel surcharge, as we intend to purchase, rather than lease,
a majority of our revenue equipment in 2020. With significant tightening in the
insurance markets, we may also experience changes in premiums and retention
limits in 2020. While fuel expense is generally offset by fuel surcharge
revenue, our fuel expense, net of fuel surcharge revenue may increase in the
future.
We continue to maintain our leverage ratio within our targeted range and remain
committed to a strong capital structure, which we believe will position us for
long-term success and enable us to pursue further opportunities for organic
growth, growth through acquisitions, and other capital allocation opportunities.
We do not foresee material liquidity constraints or any issues with our ongoing
ability to meet our debt covenants.
________
1Source: bls.gov
2Source: bea.gov
3Source: kiplinger.com
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Comparison Between the Quarters Ended June 30, 2020 and 2019 - The $1.0 million
increase in net income attributable to Knight-Swift to $80.2 million during the
quarter ended June 30, 2020 from $79.2 million during the same period last year
includes the following:
•Contributor - $22.2 million decrease in operating loss from our non-reportable
segments. Operating results within the non-reportable segments improved in the
second quarter of 2020, which included additional income earned from warehousing
activities, as compared to the second quarter of 2019, when we incurred $15.5
million in costs associated with a jury verdict.
•Contributor - $5.4 million increase in "Other income, net" primarily related to
an increase in gains recognized within our portfolio of investments.
•Offset - $18.0 million decrease in operating income within our Trucking
Segment, which was primarily due to a 6.5% decrease in average revenue per
tractor and a $5.8 million reduction in gain on sales of revenue equipment, as
well as $9.9 million in incremental expenses related to the COVID-19 pandemic.
•Offset - $8.7 million change from operating income in the second quarter of
2019 to operating loss in the second quarter of 2020 in our Intermodal Segment
due to continued market pressures, including the impact of the COVID-19 pandemic
on port volumes.
Comparison Between Year-to-Date June 30, 2020 and 2019 - The $21.5 million
decrease in net income attributable to Knight-Swift to $145.6 million during
year-to-date June 30, 2020 from $167.1 million during the same period last year
includes the following:
•Contributor - $25.8 million decrease in operating income within our Trucking
Segment, which was primarily due to a $14.5 million reduction in gain on sales
of revenue equipment, a 4.6% decrease in average revenue per tractor, as well as
$12.1 million in COVID-19 related incremental expenses.
•Contributor - $13.8 million change from operating income in the first half of
2019 to operating loss in the first half of 2020 in our Intermodal Segment due
to continued market pressures, including the impact of the COVID-19 pandemic on
port volumes.
•Contributor - $5.5 million decrease in operating income within our Logistics
Segment which was primarily due to a 4.1% decrease in revenue per load.
•Offset - $24.5 million decrease in operating loss from our non-reportable
segments primarily due to the $15.5 million jury verdict recognized in the first
half of 2019 and additional income earned from warehousing activities in the
first half of 2020.
See additional discussion of our operating results within "Results of Operations
- Consolidated Operating and Other Expenses" below.
Liquidity and Capital - During the first half of the year, we generated $383.4
million in operating cash flows, reduced our operating lease liabilities by
$48.2 million , used $195.2 million for capital expenditures (net of equipment
sales proceeds), and returned $27.7 million to our stockholders in the form of
quarterly dividends. We also repurchased $34.6 million worth of our common stock
at an average price of $30.41 per share (all within the first quarter of 2020).
We ended the quarter with $117.8 million in unrestricted cash and cash
equivalents, $235.0 million outstanding on the Revolver, $365.0 million face
value outstanding on the Term Loan, and $5.8 billion of stockholders' equity.
We continue to maintain our leverage ratio within our targeted range and remain
committed to a strong capital structure, which we believe will position us for
long-term success and enable us to pursue further opportunities for organic
growth, growth through acquisitions, and other capital allocation opportunities.
We do not foresee material liquidity constraints or any issues with our ongoing
ability to meet our debt covenants.
See discussion under "Liquidity and Capital Resources" and "Off-Balance Sheet
Arrangements" for additional information.
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUEDResults of Operations - Segment Review
The Company has three reportable segments: Trucking, Logistics, and Intermodal,
as well as certain non-reportable segments. Refer to Note 15 to the condensed
consolidated financial statements, included in Part I, Item 1 of this Quarterly
Report for descriptions of the operations of these reportable segments.
Consolidating Tables for Total Revenue and Operating Income (Loss)
Quarter-to-Date June 30, Year-to-Date June 30,
2020 2019 2020 2019
Revenue: (In thousands)
Trucking $ 879,369 $ 1,020,027 $ 1,798,430 $ 1,993,272
Logistics 70,104 82,929 149,302 171,881
Intermodal 82,820 118,195 177,551 234,562
Subtotal $ 1,032,293 $
1,221,151
45,289 29,597 91,531 67,361
Intersegment eliminations (16,884) (8,665) (31,318) (20,458)
Total revenue $ 1,060,698 $ 1,242,083 $ 2,185,496 $ 2,446,618
Quarter-to-Date June 30, Year-to-Date June 30,
2020 2019 2020 2019
Operating income (loss): (In thousands)
Trucking $ 107,788 $ 125,772 $ 215,122 $ 240,947
Logistics 3,038 5,021 6,757 12,304
Intermodal (4,475) 4,192 (7,212) 6,553
Subtotal $ 106,351 $ 134,985 $ 214,667 $ 259,804
Non-reportable segments (4,184) (26,392) (10,381) (34,912)
Operating income $ 102,167 $ 108,593 $ 204,286 $ 224,892
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Operating Statistics
Our chief operating decision makers monitor the GAAP results of our reportable
segments, as supplemented by certain non-GAAP information. Refer to "Non-GAAP
Financial Measures" below for more details. Additionally, we use a number of
primary indicators to monitor our revenue and expense performance and
efficiency.
Operating Statistic Relevant Segment(s) Description
Average Revenue per Tractor Trucking
Measures productivity and represents revenue
(excluding fuel surcharge and intersegment
transactions) divided by average tractor count
Total Miles per Tractor Trucking Total miles (including loaded and empty miles) a
tractor travels on average
Average Length of Haul Trucking Average miles traveled with loaded trailer cargo
per order
Non-paid Empty Miles Trucking Percentage of miles without trailer cargo Percentage Average Tractors Trucking, Intermodal
Average tractors in operation during the period
including company tractors and tractors provided by
independent contractors
Average Trailers Trucking Average trailers in operation during the period
Average Revenue per Load Logistics, Intermodal Total revenue (excluding intersegment transactions)
divided by load count
Gross Margin Percentage Logistics (Brokerage only) Brokerage gross margin (revenue, excluding
intersegment transactions, less purchased
transportation expense, excluding intersegment
transactions) as a percentage of brokerage revenue,
excluding intersegment transactions
Average Containers Intermodal Average containers in operation during the period
GAAP Operating Ratio Trucking, Logistics, Measures operating efficiency and is widely used in
Intermodal our industry as an assessment of management's
effectiveness in controlling all categories of
operating expenses. Calculated as operating
expenses as a percentage of total revenue, or the
inverse of operating margin.
Non-GAAP Adjusted Operating Trucking, Logistics,
Measures operating efficiency and is widely used in
Intermodal our industry as an assessment of management's
effectiveness in controlling all categories of
operating expenses. Consolidated and segment
Adjusted Operating Ratios are reconciled to their
corresponding GAAP operating ratios under "Non-GAAP
Financial Measures," below.
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Segment Review
Trucking Segment
We generate revenue in the Trucking segment primarily through irregular route,
dedicated, refrigerated, flatbed, expedited, and cross-border service offerings.
Generally, we are paid a predetermined rate per mile or per load for our
trucking services. Additional revenues are generated by charging for tractor and
trailer detention, loading and unloading activities, dedicated services, and
other specialized services, as well as through the collection of fuel surcharge
revenue to mitigate the impact of increases in the cost of fuel. The main
factors that affect the revenue generated by our Trucking segment are rate per
mile from our customers, the percentage of miles for which we are compensated,
and the number of loaded miles we generate with our equipment.
The most significant expenses in the Trucking segment are primarily variable and
include fuel and fuel taxes, driving associate-related expenses (such as wages,
benefits, training, and recruitment), and costs associated with independent
contractors primarily included in "Purchased transportation" in the condensed
consolidated statements of comprehensive income. Maintenance expense (which
includes costs for replacement tires for our revenue equipment) and insurance
and claims expenses have both fixed and variable components. These expenses
generally vary with the miles we travel, but also have a controllable component
based on safety, fleet age, efficiency, and other factors. The main fixed costs
in the Trucking segment are depreciation and rent expenses from leasing and
acquiring revenue equipment and terminals, as well as compensating our
non-driver employees.
Quarter-to-Date June 30 , Year-to-Date June 30 , QTD 2020 vs. YTD 2020 vs.
2020 2019 2020 2019 QTD 2019 YTD 2019
(Dollars in thousands, except per tractor data) Increase (Decrease)
Total revenue $ 879,369 $ 1,020,027 $ 1,798,430 $ 1,993,272 (13.8 %) (9.8 %)
Revenue, excluding fuel
surcharge and intersegment $ 816,033 $ 900,648 $ 1,637,117 $ 1,766,278 (9.4 %) (7.3 %)
transactions
GAAP: Operating income $ 107,788 $ 125,772 $ 215,122 $ 240,947 (14.3 %) (10.7 %)
Non-GAAP: Adjusted Operating $ 118,166 $ 128,303 $ 228,971 $ 243,827 (7.9 %) (6.1 %)
Income ¹
Average revenue per tractor ² $ 44,366 $ 47,440 $ 88,839 $ 93,163 (6.5 %) (4.6 %)
GAAP: Operating ratio ² 87.7 % 87.7 % 88.0 % 87.9 % - bps 10 bps
Non-GAAP: Adjusted Operating 85.5 % 85.8 % 86.0 % 86.2 % (30 bps) (20 bps)
Ratio ¹ ²
Non-paid empty miles percentage 13.8 % 12.9 % 13.3 % 12.9 % 90 bps 40 bps
²
Average length of haul (miles) 420 429 424 429 (2.1 %) (1.2 %)
²
Total miles per tractor ² 22,741 23,656 45,307 46,181 (3.9 %) (1.9 %)
Average tractors ² ³ 18,393 18,985 18,428 18,959 (3.1 %) (2.8 %)
Average trailers ² 57,269 58,263 57,456 56,902 (1.7 %) 1.0 %
1 Refer to "Non-GAAP Financial Measures" below.
2 Defined under "Operating Statistics," above.
3 Includes 16,315 and 16,491 average company-owned tractors for the second
quarter of 2020 and 2019, respectively.
Includes 16,327 and 16,352 average company-owned tractors for the
year-to-date
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Comparison Between the Quarters Ended June 30, 2020 and 2019 - Operating Ratio
was 87.7% in the second quarters of 2020 and 2019. We improved the Adjusted
Operating Ratio within this segment to 85.5% in the second quarter of 2020 from
85.8% in the second quarter of 2019, despite a $5.8 million reduction in gain on
sales of revenue equipment. We continued to see improvement in our dedicated and
refrigerated operating segments during the quarter. Average revenue per tractor
decreased by 6.5%, driven by a 3.9% decrease in miles per tractor. Revenue per
loaded mile, excluding fuel surcharge and intersegment transactions, was flat
sequentially and decreased 1.7% year-over-year. We expect rate per mile to
inflect positively year-over-year in the third quarter.
Comparison Between Year-to-Date June 30, 2020 and 2019 - Operating Ratio was
88.0% in the first half of 2020 compared to 87.9% in the first half of 2019. We
improved the Adjusted Operating Ratio within this segment to 86.0% in the first
half of 2020 from 86.2% in the first half 2019, despite a $14.5 million
reduction in gain on sales of revenue equipment. Average revenue per tractor
decreased by 4.6%, driven by a 1.9% decrease in miles per tractor. Revenue per
loaded mile, excluding fuel surcharge and intersegment transactions, decreased
2.4% when comparing the first halves of 2020 and 2019.
Logistics Segment
The Logistics segment is less asset-intensive than the Trucking segment and is
dependent upon capable non-driver employees, modern and effective information
technology, and third-party capacity providers. Logistics revenue is primarily
generated by its brokerage operations. We generate additional revenue by
offering specialized logistics solutions (including, but not limited to, origin
management, surge volume, disaster relief, special projects, and other logistic
needs). Logistics revenue is mainly affected by the rates we obtain from
customers, the freight volumes we ship through third-party capacity providers,
and our ability to secure third-party capacity providers to transport customer
freight.
The most significant expense in the Logistics segment is the (primarily)
variable cost of purchased transportation that we pay to third-party capacity
providers, included in "Purchased transportation" in the condensed consolidated
statements of comprehensive income. Variability in this expense depends on
truckload capacity, availability of third-party capacity providers, rates
charged to customers, current freight demand, and customer shipping needs. Fixed
Logistics operating expenses primarily include non-driver employee compensation
and benefits recorded in "Salaries, wages, and benefits" and depreciation and
amortization expense recorded in "Depreciation and amortization of property and
equipment" in the condensed consolidated statements of comprehensive income.
Quarter-to-Date June 30, Year-to-Date June 30, QTD 2020 vs. YTD 2020 vs.
2020 2019 2020 2019 QTD 2019 YTD 2019
(Dollars in thousands, except per load data) Increase (Decrease)
Total revenue $ 70,104 $ 82,929 $ 149,302 $ 171,881 (15.5 %) (13.1 %)
Revenue, excluding $ 67,066 $ 80,304 $ 143,823 $ 167,495 (16.5 %) (14.1 %)
intersegment transactions
Operating income $ 3,038 $ 5,021 $ 6,757 $ 12,304 (39.5 %) (45.1 %)
Revenue per load - $ 1,408 $ 1,475 $ 1,392 $ 1,452 (4.5 %) (4.1 %)
Brokerage only ¹
Gross margin percentage - 15.7 % 16.2 % 15.1 % 17.0 % (50 bps) (190 bps)
Brokerage only ¹ GAAP: Operating ratio ¹ 95.7 % 93.9 % 95.5 % 92.8 % 180 bps 270 bps Non-GAAP: Adjusted 95.5 % 93.7 % 95.3 % 92.7 % 180 bps 260 bps
Operating
1 Defined under "Operating Statistics," above. 2 Refer to "Non-GAAP Financial Measures" below. Comparison Between the Quarters EndedJune 30, 2020 and 2019 - Operating Ratio was 95.7% in the second quarter of 2020 compared to 93.9% in the second quarter of 2019. Adjusted Operating Ratio in the Logistics segment (which primarily consists of our brokerage services) increased to 95.5% in the second quarter of 2020 from 93.7% in the second quarter of 2019. 39
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Brokerage-only - With recent tightening of capacity, brokerage gross margin
decreased to 15.7% in the second quarter of 2020 from 16.2% in the second
quarter of 2019. Margins were strong to begin the quarter and subsequently
compressed, as the truckload market improved throughout the second quarter of
2020. A 10.1% decrease in brokerage load volumes and a 4.5% decrease in
brokerage revenue per load resulted in a 14.2% decrease in brokerage revenue,
excluding intersegment transactions. Our power-only service offering experienced
73.8% year-over-year growth in load volumes and represented 17.3% of our total
brokerage load volumes in the second quarter of 2020.
Comparison Between Year-to-Date June 30, 2020 and 2019 - Operating Ratio was
95.5% in the first half of 2020 compared to 92.8% in the first half of 2019.
Adjusted Operating Ratio in the Logistics segment (which primarily consists of
our brokerage services) increased to 95.3% in the first half of 2020 from 92.7%
in the first half of 2019.
Brokerage-only - Brokerage gross margin decreased to 15.1% in the first half of
2020 from 17.0% in the first half of 2019. An 8.2% decrease in brokerage load
volumes and a 4.1% decrease in brokerage revenue per load resulted in a 12.0%
decrease in brokerage revenue, excluding intersegment transactions.
Intermodal Segment
The Intermodal segment complements our regional operating model, allows us to
better serve customers in longer haul lanes, and reduces our investment in fixed
assets. Through the Intermodal segment, we generate revenue by moving freight
over the rail in our containers and other trailing equipment, combined with
revenue for drayage to transport loads between railheads and customer locations.
The most significant expense in the Intermodal segment is the cost of purchased
transportation that we pay to third-party capacity providers (including rail
providers), which is primarily variable and included in "Purchased
transportation" in the condensed consolidated statements of comprehensive
income. Purchased transportation varies as it relates to rail capacity, freight
demand, and customer shipping needs. The main fixed costs in the Intermodal
segment are depreciation of our company tractors related to drayage, containers,
and chassis, as well as non-driver employee compensation and benefits.
Quarter-to-Date June 30, Year-to-Date June 30, QTD 2020 vs. YTD 2020 vs.
2020 2019 2020 2019 QTD 2019 YTD 2019
(Dollars in thousands, except per load data) Increase (Decrease)
Total revenue $ 82,820 $ 118,195 $ 177,551 $ 234,562 (29.9 %) (24.3 %)
Revenue, excluding $ 82,699 $ 117,727 $ 177,321 $ 233,404 (29.8 %) (24.0 %)
intersegment transactions
GAAP: Operating (loss) $ (4,475) $ 4,192 $ (7,212) $ 6,553 (206.8 %) (210.1 %)
income
Non-GAAP: Adjusted $ (4,410) $ 4,192 $ (7,099) $ 6,553 (205.2 %) (208.3 %)
Operating (Loss) Income
Average revenue per load $ 2,249 $ 2,438 $ 2,283 $ 2,447 (7.8 %) (6.7 %)
¹
GAAP: Operating ratio ¹ 105.4 % 96.5 % 104.1 % 97.2 % 890 bps 690 bps
Non-GAAP: Adjusted 105.3 % 96.4 % 104.0 % 97.2 % 890 bps 680 bps
Operating Ratio 1 2
Load count 36,769 48,290 77,658 95,399 (23.9 %) (18.6 %)
Average tractors ¹ ³ 571 651 586 672 (12.3 %) (12.8 %)
Average containers ¹ 10,853 9,863 10,355 9,864 10.0 % 5.0 %
1 Defined under "Operating Statistics," above.
2 Refer to "Non-GAAP Financial Measures" below.
3 Includes 510 and 572 company-owned tractors for the second quarter of 2020 and
2019, respectively.
Includes 523 and 592 company-owned tractors for the year-to-date June 30, 2020
and 2019 periods, respectively.
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Table of Contents Glossary of Terms
KNIGHT-SWIFT TRANSPORTATION HOLDINGS INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Comparison Between the Quarters Ended June 30, 2020 and 2019 - Operating Ratio
was 105.4% in the second quarter of 2020 compared to 96.5% in the second quarter
of 2019. During the second quarter of 2020, our Intermodal segment produced an
Adjusted Operating Ratio of 105.3%, compared to 96.4% during the second quarter
of 2019. Continued market pressures, including the impact of the COVID-19
pandemic on port volumes, contributed to a 29.8% decrease in revenue, excluding
intersegment transactions, as load counts decreased 23.9% and revenue per load
decreased 7.8%. We continue to develop our Intermodal network and cost structure
and expect to see improved results in the back half of the year.
Comparison Between Year-to-Date June 30, 2020 and 2019 - Operating Ratio was
104.1% in the first half of 2020 compared to 97.2% in the first half of 2019.
During the first half of 2020, our Intermodal segment produced an Adjusted
Operating Ratio of 104.0%, compared to 97.2% during the first half of 2019.
Continued market pressures, including the impact of the COVID-19 pandemic on
port volumes, contributed to a 24.0% decrease in revenue, excluding intersegment
transactions, as load counts decreased 18.6% and revenue per load decreased
6.7%.
Non-reportable Segments
The non-reportable segments include support services provided to our customers
and independent contractors (including repair and maintenance shop services,
equipment leasing, warranty services, and insurance), trailer parts
manufacturing, warehousing, and certain driving academy activities, as well as
certain corporate expenses (such as legal settlements and accruals, certain
impairments, and $11.2 million in quarterly amortization of intangibles related
to the 2017 Merger and various acquisitions).
Quarter-to-Date June 30 , Year-to-Date June 30 , QTD 2020 vs. YTD 2020 vs.
2020 2019 2020 2019 QTD 2019 YTD 2019
(Dollars in thousands) Increase (Decrease)
Total revenue $ 45,289 $ 29,597 $ 91,531 $ 67,361 53.0 % 35.9 %
Operating loss $ (4,184) $ (26,392) $ (10,381) $ (34,912) (84.1 %) (70.3 %)
Comparison Between the Quarters Ended June 30, 2020 and 2019 - Operating results
within the non-reportable segments improved in the second quarter of 2020, which
included additional income earned from warehousing activities, as compared to
the second quarter of 2019, when we incurred $15.5 million in costs associated
with a jury verdict.
Comparison Between Year-to-Date June 30, 2020 and 2019 - Operating results
within the non-reportable segments improved in the first half of 2020, which
included additional income earned from warehousing activities, as compared to
the first half of 2019, when we incurred $15.5 million in costs associated with
a jury verdict.
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Table of Contents Glossary of Terms
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